Port supply chain integration under mixed ownership

Abstract

In the port supply chain, vertical integration between ports and shipping lines is no longer confined to private integration, but is more likely performed as a hybrid integration between public ports and private shipping lines. In this study, we consider port supply chain integration between a public or private port and its shipping line, which provides differentiated services in the shipping market, and investigate shipping lines’ competition contracts under mixed ownership. We show that if shipping lines choose a volume contract, double vertical integration between two ports and their corresponding shipping lines yields the highest welfare; however, if shipping lines choose a price contract, single private integration can yield the highest welfare. We also endogenize the supply chain integration and find that a double integration-and then-price contract is socially beneficial only when the private share of a mixed merger is low while the shipping service substitutability is neither high nor low. Our findings suggest that government ownership of a public port can serve as an efficient tool for port policy in the context of port supply chain integration.